Up until this point in the ditto educational series we have covered a wealth of knowledge to help you build a foundation of understanding of the forex markets. Before you go any further it may be time to decide which trading style you need to adopt in accordance with your personal preferences and lifestyle requirements. Today we will discuss most trading styles and what they entail so you may pick and stick to your style.
Trading style usually resonates within the personality of a trader. It is important that we are honest with our selves about our personal traits so that we may better choose a style that reflects our nature.
The reason for this is because using a trading style that doesn’t reflect our personality can lead to us straying from our trading plan due to poor suitability.
When we choose a strategy or style that reflects our true nature that style tends to endure and becomes the basis for how we trade permanently. This reminds of how in martial arts they don’t consider any one style to be superior but rather the individual who has adopted that style to have resonated with it beyond his peers.
Let’s now look at examples of different types of traders and the personalities that they may suit. These are not absolute definitions as there are always exceptions to the rule such as adaptive personalities that may use multiple methods on the same or spreads accounts.
EOD (End of Day)
This is a popular trading style for anyone who works full time and with a more laid back outlook on life. End of day traders analyse the markets on a daily or weekly basis and set pending orders to be present in the market when they are away from their screens. If you have a busy lifestyle this may be a suitable method because it requires less time in front of the screen to analyse or manage your trades.
Fundamental (Macro Trading)
This is making Use of Fundamental data or financial models to assess the strength or weakness of a currency or country to anticipate future price value. The source of information would vary and would be combined in order to build a larger scale picture to aid decision making. This trading style may be better suited to a highly organised person with more time on theirs hands that also is very detail orientated.
An intraday trader opens and closes a trade within the same day. Swing trading the 1HR chart could be included as Day Trading, and day-trading has a lot more emphasis on Technicals over fundamentals. This style of trading maybe better to those personality types that require faster results but still enjoy planning their moves technically speaking.
There are different sub categories of intraday trading which we will look at next. These include: Scalping; News Trading; Swing Trading; Trend Trading.
News Traders tend to Specialise in ‘High impact News’ events and generally trade during, or relative to the release of important news. Extreme volatility is a concern if a surprise figure is released which has not been widely anticipated by the markets. This can create an opportunity to make more profit over a very short period of time. Personality types which are generally risk based may want to trade this way but be cautious as you do.
Position traders are very patient types of traders who hold positions for a very long term. from weeks, to months to some time years. Long term traders are generally not concerned with short-term fluctuations such as news can produce because they believe that events like news are temporary blips in a larger directional movement.
Position Traders are flexible as they tend to use a lot more fundamental information due to the longer holding time, however they may also be purely technical in their analysis. Position Traders and Swing Traders are more likely to use Pending Orders to enter the market and other than patience this style may be quite liquid in terms of personality type.
Scalping is another form of intraday trading, and unlike the other trading styles we have discussed you must be constantly monitoring your trades when initiated and prior to.
Whilst this is an extremely popular form of trading due to the higher potential for quicker profits, it is also one of the harder styles to master as it can be very attractive to our gambling instincts and only the most disciplined are successful.
You may find a lot of new traders are attracted to this style of trading but it is not an easy undertaking.
Swing Traders are also based in patience and are generally attempting to trade the swing of a chart and catch larger scale movements. Popular timeframes to enter trades are usually the daily charts, and positions are held open for days, or sometimes weeks.
There are some exceptions However as the 1 hour charts are also very popular with a view to hold a position for a few hours, or maybe overnight and potentially for a few days. Maybe this is suited to a less patient but still long term thinker.
Technical trading is very liquid by personality standards. It involves Analysing, entering, managing and exiting trades using only Technical Analysis. This can be performed on any timeframe, although generally speaking ‘Technicals’ are more popular on intraday timeframes, however Technical Analysis can also be used for long-term forecasting. There are so many personality types that this could apply too.
Trend traders main objective is to identify a trend and only trade in the same direction as the suspected trend until its perceived end. Traditionally trends traders were associated with long-term fund managers, however in reality you can become a trend trader on any timeframe you choose as all timeframes trend although I would exclude some of the very low timeframes as without analysing the bigger picture trend can be difficult to determine.
BE CONSISTENT WITH YOUR TRADING STYLE!
Consistency in trading style will lead to consistency in results. Altering your style when trades are not going your way is a common mistake that novice traders repeatedly make. If your strategy, style and personality all resonate together you will be more likely to to reflect positive results in you trading. Self reflection patience and practice will see you develop in to a trader that knows themselves and their approach to the market. We now know the importance of trading in a way that enhances our traits and should seek to exploit our strengths and avoid our weaknesses.
I hope you have enjoyed our discussion today ladies and gentleman please sit back and contemplate what you have learned today and remember Contemplation is the key to learning.
This article is spot on, and a must for new traders.
I was a jack of all trading styles when I started out for around the first 10 months and the master of none!
Getting my head focused and applying myself to one trading style was the break through in making real progress in my trading.